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how to calculate issuance cost on debt in APV?

0 Votes
May 2nd 2014 AN ACCA USER 410 Points

6 Replies

+1 Vote

well it depends on the question
Sometimes Question clearly states that Issuance cost of debt is This
other times you have to segregate it from the total cost of issuance by some percentage basis given by the examiner.

May 3rd 2014 AN ACCA USER 1,570 Points
+1 Vote
For example debt is 100,000 and issuance cost is 2%
what will be the issuance cost?
May 3rd 2014 AN ACCA USER 410 Points
0 Votes
Total amount = 100%
Issuance cost = 2%
Debt raised = 98%
98% = 100,000
Issuance cost = 100,000*2/98 = 2040.8

Here, we see issuance cost as margin of total amount.
May 29th 2014 AN ACCA USER 8,730 Points 1 Flag
0 Votes

reading question scenario is very important becoz a slight mistake will result in change of approach and loss of marks! and one cant afford losing easy marks in P4!

September 5th 2014 AN ACCA USER 590 Points
0 Votes

It depends on whether the amount of debt given is gross of issue costs or net of issue costs! for exmple if 100,000 debt is gross of issue costs than issue cost will be 2040.8 and if it is net of issue cost than issue cost will be 2000,, and dont forget to take into account tax effect because after tax issue is the one that a company bears in actual and is relevent for appraisal purposes!

September 5th 2014 AN ACCA USER 590 Points
–1 Vote
100,000x2%= 2000 will be the issuance cost
May 3rd 2014 AN ACCA USER 1,570 Points
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